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Why Dispute Resolution methods like Negotiation are necessity for construction disputes & claims?

Published on: Tue, 2013-12-10 14:54

A building contract being essentially a contract of reciprocal promises, presents a pattern of integrated actions of both parties, so correlated and timed that delay or default of any one step by any party would put out of gear the entire machinery of construction entailing extra time and expenditure to put it back in proper gear. Sometimes the machinery may even grind to a halt and to put it back into gear again would entail tremendous time and expense. Such a situation leads to mutual recrimination and raises differences and disputes which call for a settlement process, expeditious and amicable, by an independent and impartial authority acceptable to both, well qualified to appreciate the technical points involved, preferably pre-selected by name or designation or to be appointed by a designated authority

Let us see one by one the types of Dispute Resolution methods which attached below.

Construction Claims and Dispute Resolution

A construction contract, being one that involves multiple parties, is bound to lead to disputes. When a dispute arises in a construction contractual relationship, the parties often spend a great deal of time in negotiations in an attempt to resolve the dispute, rather than resorting to courts. It is easier to say that, because of the nature of construction contracts, or better yet the construction process, conflicts and disputes are almost inevitable. This is because, in construction projects, a number of different contracting entities with different needs are expected to cooperate and coordinate their efforts. To put it in better words:

A building contract being essentially a contract of reciprocal promises, presents a pattern of integrated actions of both parties, so correlated and timed that delay or default of any one step by any party would put out of gear the entire machinery of construction entailing extra time and expenditure to put it back in proper gear. Sometimes the machinery may even grind to a halt and to put it back into gear again would entail tremendous time and expense. Such a situation leads to mutual recrimination and raises differences and disputes which call for a settlement process, expeditious and amicable, by an independent and impartial authority acceptable to both, well qualified to appreciate the technical points involved, preferably pre-selected by name or designation or to be appointed by a designated authority.

The need for the dispute resolution in construction industry may be due to many reasons that can be classified as follows:

  • Breach of contract;
  • Non-settlement of payment as per time schedule;
  • Lack of proper communication;
  • Insufficient specifications, drawings, designs and plans;
  • Non-provision of safety practices and job site injuries;
  • Alterations in the works without proper orders and
  • Improper management and non-coordination between parties.

Traditionally, construction disputes and conflicts were handled by litigation. However, the court system has proven to be neither cost effective nor timely in resolving construction issues. Quite often, a spirit of give and take prevails, and the matter is settled amicably. To solve the inevitable disputes that arise in the process of performance of obligations under construction contracts through litigation may takes years and will definitely result in the spending of huge amounts of money, not to mention the stress  and the feeling of distrust that it will be putting on the contracting parties. Due this need for an effective, economic and efficient means of dispute resolution in construction contractual relationships, alternative means of dispute resolution are highly availed of. The emphasis on the need for alternative means of dispute resolution is highlighted by the fact that almost all construction contracts contain specific provisions on alternative dispute resolution. Accordingly, this unit deals with litigation as well as the different alternative means of dispute resolution.

1 Negotiation

Direct, face-to-face negotiation between the parties, without the use of a third party, involves the exchange of offers and counteroffers and a mutual discussion of the strengths and weaknesses of each party’s position. This method is usually most effective if the parties are represented by skilled and knowledgeable counsel, and if both have an incentive to reach an agreed settlement.

2 Conciliation/Mediation

If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation rules before resorting to arbitration, litigation or some other dispute resolution procedures.

Mediation is a process whereby the parties, with the assistance of a neutral third party, negotiate a resolution to their differences.  Mediation, in many instances, has been extremely effective in resolving contract disputes, thus avoiding the time, energy and cost of arbitration or litigation. Mediation is a structured negotiation in which the mediator provides the structure. The mediator will establish ground rules and acts as a referee, facilitating communications between the parties. The Mediator assists the disputants to generate options and understanding of their respective positions and manage emotions. Although the Mediator controls the process, he or she does not impose any resolution or opinion on the merits of the case, promoting a win/win situation; leaving the disputants themselves to control the outcome. Hence the process is flexible, private and confidential with legal rights of the parties protected when there is no agreement reached.

The mediator’s role is to guide and assist the parties to fashion their own settlement, serving as a facilitator to help the parties reach the desired goal of a resolution of their conflict. Parties will settle a dispute as soon as they decide it is in their mutual best interests to do so. At the most basic level the mediator’s function is to keep the parties talking and searching for ways to resolve the dispute.

A mediation clause can pressure one party to compromise, and ultimately accept less than litigation would have awarded.   Nevertheless, it may result in fewer or more benefits to one of the parties. Even when parties assert that they are going to refuse to settle, the courts recognize that, in fact, settlements and compromises are often obtained through mediation notwithstanding the parties’ predisposition.  Thus, although mediation, unlike arbitration, concludes a dispute only through agreement of the parties, courts generally enforce a mandatory mediation clause.

If both parties are prepared to negotiate and compromise in good faith, mediation can be one of the least expensive and most effective dispute resolution methods. In addition to the cost benefit of mediation, there are many benefits that flow from a creative solution crafted by the parties themselves. Understandably, parties are more likely to abide by an agreement that they helped negotiate and, frequently, their business or personal relationship is left intact to allow future constructive dealings.

3 Adjudication

It should be underlined here that “adjudication” is meant to refer to a disparate pre-arbitral dispute settlement method in the construction industry; it is commonly used in a technical sense. In the construction industry, ‘adjudication’ can be defined as:

…a process whereby an appointed neutral and impartial party is entrusted to take the initiative in ascertaining the facts and the law relating to a dispute and to reach a decision within a short period of time.

‘Adjudication’, as a first tier in dispute resolution, was introduced in the UK by the Latham Report of 1994 and incorporated in the Housing Grants, Construction and Regeneration Act of 1996.  This Act provided that in all construction contracts, the dispute is first submitted to adjudication as a condition precedent to the bringing of arbitration or litigation.   It is not clear of when and how it was introduced to the Ethiopian construction contracts; it can be safely said, however, that it has earned itself a cherished place in the resolution of construction disputes for quite some time.

According to Article 34 of the Federal Standard Bidding Document for the Procurement of Works, the adjudicator is required to act as an impartial expert to resolve disputes between the parties as rapidly and economically as is reasonably possible. The Bidding Document further expounds the role of the adjudicator as “to include, but not limited to, requiring and examining any relevant documents and written statements, making site visits, using his own specialist knowledge and holding a hearing”. Furthermore, the adjudicator’s decision should “reflect the legal entitlements of the parties and his fair and reasonable view of how the dispute should be resolved”. The adjudicator’s decision is binding on the parties unless challenged within a specified period and then varied in an arbitration or litigation depending on the terms of the contract. If the decision is not challenged within the specified period, it then becomes final and binding.

so as a conclusion ,

Issues of Dispute occurrences between Client and Consultant

1.consultant do not complete the services in the scope, that is; projects not satisfying the functional objectives set for and anticipated of;

2. Consultant do not complete the services on time,

3.clients do not present their complete requirements in the terms of reference, and changing the initial project idea or need additional works to be included in the project during completion stage of the design and/or throughout construction,

4. Clients do not pay the service charges on time, and resistance on settlement of consultant’s fee on delayed projects,

5. Inadequate underground investigations by consultant;

6. Consultant’s incomplete and /or wrong design and/or drawing and/or specifications; poor quality of design and missing details, design faults and/or inaccuracies occurred are detected during construction,

7. Inadequate Engineer’s cost estimate submitted for purpose of budget allocation to the project; mainly variations due to increase of work volume that has impact on budget of the client,

8. Inadequate effort in the control for conformance of qualities, dimensions, etc. vis-à-vis to those set out in the contract documents,

9. Competence of professionals assigned by the consultant,

10. Failure to give approvals and instructions,

 11. Not understanding or neglecting the conditions of contract by the consultant,

12. Employer’s interference on the contract administration works of the consultant,



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